Economic Stimulus: What does the 2008 stimulus act do for businesses?

The Economic Stimulus Act of 2008 contains two provisions that help businesses by increasing limits on expensing investment costs and accelerating depreciation of some investments. The congressional Joint Committee on Taxation estimates that the two provisions will reduce federal revenue by $51 billion in fiscal 2008 and 2009. Revenue will rise by $43.5 billion in subsequent years as firms will claim less depreciation for investments made in 2008 than they otherwise would have. As a result, revenue losses from the investment provisions will net $7.5 billion from 2008 through 2018.

Temporary Increase in Limitations on Expensing of Depreciable Business Assets. Businesses may expense (that is, deduct the full cost of) qualifying investment undertaken in 2008, subject to limitations. The stimulus bill doubles for one year the maximum amount of investment that firms may expense. "Qualifying investment" is generally defined as "depreciable tangible personal property that is purchased for use in the active conduct of a trade or business."

Firms may expense up to $250,000, but this limit is reduced by the amount by which qualifying investment exceeds $800,000. Thus, for example, a firm that invests $750,000 may expense $250,000. But a firm that invests $900,000 may expense only $150,000, because the $250,000 limit is reduced by the $100,000 of investment over the $800,000 limit. Firms that invest $1,050,000 or more may not expense any of their investment.

After 2008 the limit on expensing reverts to $125,000 (indexed from 1997), with the reduction beginning when investment exceeds $500,000 (also indexed from 1997).

This provision will reduce federal revenue by an estimated $1.5 billion in fiscal 2008 and 2009, but that cost will be offset by about $1.4 billion of additional revenue in subsequent years, because firms will be unable to claim as much depreciation in those years on investments made in 2008. The net revenue cost from 2008 through 2018 will thus be about $100 million.

Special Depreciation Allowance for Certain Property. On top of the amount of investment that they may expense, firms may also claim an additional first-year depreciation of 50 percent of the cost of qualifying investments contracted for and placed in service during 2008. The Joint Committee on Taxation estimates that this provision will reduce federal revenue by about $49.5 billion in fiscal 2008 and 2009, but that cost will be offset by about $42.1 billion of additional revenue in subsequent years, because claiming the additional first year depreciation will reduce the amount firms may depreciate in the future. The net revenue cost from 2008 through 2018 will thus be about $7.4 billion.